In America, having great credit is essential to your quality of life.
Most people do not have hundreds of thousands of dollars in their bank accounts — they rely on credit to make major purchases. For example, if you are going to buy a home, a car, or a boat, the natural thing to do will be to get a loan.
When you step in a creditor’s office to ask for a loan, the first thing they do is pull your credit score. Your credit score tells them almost everything they need to know about doing business with you.
The next thing is to know your current income, but we’ll talk about that in another post.
So why does your creditor want to know your credit score? Well, because your credit score tells them if they should give you any money at all, how much, and at what interest rate.
If your credit score is high — in the 700s and above — you don’t have to worry. However, if it is bad –below 600 — then you have some work to do. That’s where this “weird” loan comes in. It is a self-lender loan. Other people call it a credit builder loan, and for good reasons.
So What Is A Self-Lender Loan?
Let me put it this way. When you get approved for a loan, you expect to see the money in your account, or at least have the cash in your hand, right?
With a self-lender loan, you don’t get you the cash – at least not immediately.
Here’s what your lender does. Instead of giving you the money, the lender puts it in a Certificate of Deposit (CD) or an interest-bearing account.
The money stays in the account and matures over the period of the loan. Let’s say the loan repayment period is 12 or 24 months. You will make monthly payments until the loan is paid off. After you pay the loan off, the bank will then give you the money.
Related: Best Investment Apps For The Novice Investor.
What’s Amazing About The Credit Builder Loan
Here’s why the Self Lender loan is fantastic. First, you can be approved for a credit builder loan even if you don’t have credit. Secondly, if you have credit but it’s bad credit, that’s even better because the self lender loan will help increase your credit score.
How Self Lender Loan Can Increases Your Credit Score
Self lender loan is a credit builder loan for excellent reasons. When you make a payment on your credit builder loan, your lender reports your payment to the three major credit bureaus. That’s TransUnion, Experian, and Equifax.
Reporting your payment to the credit bureau is significant because the record of your payment feeds into your credit score. If you make your payments on time, it increases your credit score. If you don’t, it decreases your score.
Self Lender Loan Helps You Save
The Self lender loan indirectly helps you to save. That’s because rather than giving you the loan amount, the lender keeps it for you in a CD or a savings account. You get to receive the money in a lump-sum when the CD matures.
Conclusion
Credit scores are critical to your financial health. If yours is bad and you want to improve it, consider getting a credit builder loan. This kind of loan is not very popular; however, it is very useful in establishing credit or improving your credit score.
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